When will they learn?

The latest fashion for the wealthy in Spain is to find another country to pay income tax.

I was enjoying a
pleasant lunch overlooking the paseo marítimo in Marbella in the company of
Max, a client of many years.

We were reflecting on
how wonderful life is in Spain and remembering the dismal weather and general
greyness of our previous existences in the Northern climates.

The bubble burst on
our musings of paradise when Max raised the painful issue of the M720.

This is the
unbelievably idiotic initiative by the Government, allegedly to do something
about tax fraud in Spain, demanding that all tax residents file a special
declaration giving details of their non-Spanish assets.

Never mind that the
regulations were so badly drafted that the tax office was still issuing guidelines
on the rules just a few days before the 30 April filing deadline.

Never mind that the
M720 reporting obligation is so intrusive and offensive as to be widely
regarded by the professional community in Spain as unconstitutional.

Never mind that the
fines for non-compliance were frighteningly high - just misunderstanding what
has to be declared can produce a fine of 10,000€. Our enquiries demonstrated
that the tax office didn't have a clue and the whole thing was a total and
unmitigated mess. The only intelligent Administration in Spain appears to be
Navarra that gave its people until 30 June to deal with this filing.

So what has the
Government achieved? Undoubtedly, it has generated a bit more tax. Many people had
the odd 'forgotten' bank account and decided to come clean and declare the
asset and pay a bit of back tax for the last few years. The extra tax was,
generally speaking, nothing of any real consequence.

But recent experience
tells me that this was not the only consequence of the M720.

You see, I was having
lunch with Max to go through the alternatives of where he might live. Max and
his wife, like so many foreigners in Spain, are very mobile. They really like
living in Spain as semi-retired people spending perhaps eight or nine months in
Spain. But they can just as easily spend less than six months a year in Spain
and a bit more time in another country.

So I was explaining the
relative merits to Max of the tax systems in Portugal, the UK, Ireland and even
Morocco. Yes, even Morocco is now more attractive than Spain, shock, horror!
Portugal has actually introduced special tax rules to encourage foreigners to
become tax resident, not frighten them away!

The UK and Ireland look
especially attractive to Max and his wife, with dozens of flights to Málaga each
day so that they can go backwards and forwards to their hearts content. When it
gets a bit too grey there, they can fly to Spain for a few days to enjoy a round
of golf in the sun or have lunch on the sunny paseo maritimo and do so some beautiful
people watching.

The UK or Ireland are also
especially attractive because as non domiciled tax residents of either country,
Max and his wife would only pay income tax on what they remit to the country. In
effect, they would only have to pay income tax on what they actually spend
there.

Other tax rules in
these countries in particular can almost make the amount of income tax you pay
a matter of choice.

Mmmm, I wonder, how
much tax shall I decide to pay this year…..now there's a nice thought?

And all this is 100%, absolutely,
honestly and truly lawful.

I really do hope that
Señor Rajoy and his merry men and women read this article and realise that it
is really not very clever to frighten off foreigners who buy property, live and
spend money in Spain and support the Spanish economy by spending money in
Spanish shops and restaurants, thereby providing much needed jobs.

Max and his wife have
not been deliriously happy that Spanish taxes have gone up over the last few
years and that wealth tax has come back. But they were willing to tolerate this
as they felt it right to contribute a little more to the country that they love
so much.

But the M720 has
really frightened and upset them. They have heard stories that the M720 is
nothing more than a way to track assets of people living in Spain so that they
can introduce new taxes or other means of sequestration. They have even heard
stories of an exit tax to penalise people who leave Spain.

I hasten to add that
these are nothing more than scaremongering rumours. The problem is that
frightening people inevitably causes this kind of reaction. It is a fact, people,
both Spaniards and foreigners, just do not trust Spain's politicians any more.

When will the
politicians learn?

Anyway, back to Max. A
few days after our pleasant lunch he told me that he has decided on the UK and
will start by renting a small apartment in London. Probably somewhere central like
Kensington or Chelsea so that he and his wife can enjoy the best that central
London can offer.

The UK will be very
pleased to have their income tax contributions next year. The London property
market will benefit from yet another couple that has decided that the UK is a
good alternative place to live. The theatres, restaurants and shops of London
will be pleased to see yet another customer.

Sadly, my friend the
tax consultant in London, to whom I introduced Max and who specialises in new
non-domiciled residents, will benefit and my firm will lose a client. It used
to be the other way around. C'est la vie.

Everything that the UK
will have gained will have been at the expense of Spain.